Budget Office: Shipbuilding Costs May Cause Navy Problems

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4 Jan 2017

A new analysis from the Congressional Budget Office finds the 30-year shipbuilding plan released by the Navy last year may leave the service in financial straits.

Over three decades, the analysis finds, the Navy will spend $60 billion more than its own estimates indicate, and the plan overall would cost nearly a third more than the service spent on shipbuilding across the last three years.

The four-page summary concludes that planners and lawmakers have a choice: Maintain current shipbuilding spending levels and purchase 29 ships instead of 38 over the 2017-2021 construction period, a reduction of nearly 25 percent -- or find savings elsewhere in the Navy and Defense Department budget and increasing shipbuilding funds.

The summary assesses the Navy's plan to build the fleet to a total of 308 ships by 2021, a goal originally set in 2014. Its current fleet has 274 ships. The assessment does not, however, account for a new force structure assessment released in December that called for a fleet of 355 ships to meet the Navy's operational needs going forward.

A Navy spokesman, Lt. j.g. Seth Clarke, told Military.com in a statement that the recent assessment was focused on the Navy's operational needs, rather than its fiscal constraints.

"While the Force Structure Assessment (FSA) process is fiscally informed, in that it considers the cost benefit of options, when they exist, to deliver the required capability, it is not fiscally constrained," he said.

"There are certainly affordability challenges in procuring a larger force, especially while recapitalizing the nation's critical sea-based strategic deterrent," he added. "However, the FSA's primary purpose is to determine the battle force needed to meet strategic guidance with acceptable risk."

Yet the current 30-year shipbuilding plan is roughly in line with what has been proposed in previous years. The primary difference is a reduced request for small surface combatants: littoral combat ships and future frigates. The plan reduced the build demand for these ships from 67 to 58 last year as the Defense Department called for fewer of the ships.

Though the plans may be similar, Congressional Budget Office officials said the Navy will end up paying much more than expected due to two miscalculations. First, the report's authors said, the Navy's shipbuilding estimates aren't high enough, to the tune of $1.9 billion a year, or $57 billion over three decades.

"CBO's estimates are higher because its estimating methods and assumptions regarding future ships' design and capabilities differ from those that the Navy uses and because its treatment of growth in the costs of labor and materials for building ships is different from the Navy's," the authors write.

Second, they said, the Navy's plan excludes other costs that should be included in the budget, including refueling aircraft carriers or outfitting ships after delivery, which would account for $1.8 billion of the additional cost, according to the authors' calculations.

The authors also warned that the Navy may face more severe ship shortfalls than planned for, due to overly conservative estimates regarding the ships' service lives. In its current plan, they said, the Navy estimates large surface combatants will serve between 35 and 40 years, while historically, few of those ships have been able to remain in service more than 30 years.

The simplest solution, they concluded, may be an increase in funding to account for the alleged higher costs.

"Facing similar constraints, in setting the appropriations for each year from 2013 through 2016, the Congress added $1 billion to $2 billion to the Administration's request for shipbuilding," they wrote.